What You Need to Know Before Making an Offer on a House

What You Need to Know Before Making an Offer on a House

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I was scoping out all of the “For Sale” and “Coming Soon” signs dotted all over town this past weekend. It occurred to me that not only is the summer travel season heating up, but the real estate market is as well. After all, the best time of year to purchase a home is typically during the late spring and summer, as families tend to move before the school year begins. The good news is that housing inventory is on the rise throughout the country after a 5-year slump! For those looking to buy, it’s important to keep in mind key considerations before making an offer on a house.

Essential Tips to Consider Before Making an Offer

Whether you’re itching to jump into the market this summer or simply exploring your options, it never hurts to prepare before making a move. Here’s what you should know:

Your cash and mortgage pre-approval status

You will need to secure a home loan unless you plan to purchase a property in cash. A mortgage pre-approval involves a thorough review of your financial standing and credit history by a loan officer. The pre-approval determines the mortgage interest rate and the maximum loan amount that a borrower is eligible to receive. It provides clear budget boundaries and establishes your credibility as a homebuyer, signaling to sellers that you’re serious about purchasing a property.

Additionally, it’s important to ensure your down payment is liquid and that you have enough funds for earnest money, property taxes, closing costs, and any potential unexpected expenses that may occur during the homebuying process.

How much monthly payment you can afford

A home loan isn’t free money, and if you intend to borrow the maximum amount, you should seriously consider if you can make the required monthly payments. A large loan could very well mean high monthly payments, which could lead to financial strain, especially when you factor in your utilities and daily spending habits.

Another key factor to keep in mind is that it’s possible for your fixed monthly mortgage payment to fluctuate over the life of the loan. If your loan includes a mortgage escrow account, the lender directs part of your monthly payment into a holding account to pay for property taxes and homeowners insurance. Each year, your lender estimates the amount to allocate to escrow in order to cover these costs. However, higher property taxes or insurance premiums can cause costs to increase beyond the estimated escrow amount. Escrow shortages commonly occur and can derail your finances if you’re not prepared for them.

Partner with a trusted real estate agent

A great real estate agent offers expert guidance and knowledge through every step of the buying or selling process. Working with an experienced agent can significantly cut down on the time and effort spent looking for a home. Not only do they have access to the Multiple Listing Service (MLS) and a large network of real estate professionals, but they’re also familiar with the complexities of real estate transactions, market trends, and negotiations.

Examine the home with a keen eye

If the market and time allow, I recommend visiting a home at least twice before making an offer. Try to remain objective. Examining the home with a keen eye helps you make more informed decisions.

  • Is the home priced correctly?
  • Does it appear well-maintained?
  • If not, are you willing to pay for what’s to come?
  • Can you spot any immediate visual red flags?
  • Are you willing to waive contingencies if the competition calls for it?
  • What are you willing to compromise on?

Bring along a friend or family member who can help point out potential issues. Another set of eyes might identify problems you might have missed or overlooked!

Get a feel for the neighborhood

Making an offer on a house indicates that you’re serious about owning the home. Before you present an offer, scope out the local grocery stores, take a drive around the neighborhood, and talk to some neighbors. If you plan to live in the home, then you’re not just buying a home; you’re choosing to live in a new community. Does it seem safe? Does it appear that the local government is putting the property taxes to good use? Are the neighbors kind and welcoming?

It’s also a good idea to factor in the location of the property. Consider the proximity to your current job, future job opportunities, entertainment, and access to public transportation.

Planned developments or zoning changes

Find out if there are any potential changes in the work that could affect your interest in the property. If so, this could have a significant impact on the future value of your purchase. Some developments could be highly beneficial, such as infrastructure improvements or a new school. On the other hand, some could be controversial, like tearing down a few acres of forest to make room for a new shopping center.

Determine a negotiation strategy

Before making an offer, you should have a clear negotiation strategy in mind. Consider what terms are most important to you, and be prepared to prioritize and compromise on certain aspects to reach an agreement. While your real estate agent can offer valuable guidance during negotiations, it’s key to understand your own limits and expectations to ensure satisfaction. Personally, one of my favorite reminders is the idea of being okay with walking away! It helps shift my perspective and reduces stress.

Understand the competition

How long has the property been on the market? What comparable listings are available in the area? How many other offers are on the table? Discuss the competition with your agent to assess how competitive your offer should be prior to submitting it.

Decide on contingencies

Contingencies allow buyers to walk away from a deal with their earnest money if certain conditions are not met. Making an offer on a home with contingencies means that the sale will be finalized pending the satisfaction of a home inspection, appraisal, financing, etc.

In a competitive market with multiple bids, buyers will often submit offers without contingencies. This can be a highly risky move, as it would mean that once the offer is accepted, it becomes a legally binding contract, no matter what unforeseen issues or problems arise.

I like a bit of risk, but a non-contingent offer is not my cup of tea. Who knows what kind of mess awaits?! No, thanks. I think the purpose and cost of hiring a qualified home inspector is well worth the money. A professional home inspector will thoroughly inspect a prospective property, looking for signs of structural damage, water damage, maintenance issues, and any other problems that may need addressing.

Happy Hunting

Enjoy house-hunting, whether you’re searching for a new home this summer or simply exploring the housing market. Navigating the market can certainly be tricky. However, with trusted connections and an understanding of the homebuying process, you can carefully consider your options before making an offer on a house.

Though, if you’re like me, you might just enjoy visiting open houses for the fun of it. I’m a curious gal, and I like keeping an eye on the local market. After all, there’s no telling what surprises are waiting to be discovered!

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2 Responses

  1. If you’re a first time buyer and have limited resources you may be tempted to look into a townhome. Our own experience shows that some builders will hire low skilled, questionable contractors to handle essential systems, like plumbing or electrical. They know the minimum requirements to skirt inspections and get the job done quickly, often using low quality components. Contractor-grade doesn’t translate to high quality, so you may be buying a home that will require major upgrades sooner than anticipated. Water heaters, HVAC, kitchen appliances, windows and doors are some of the components I’ve found to be of minimal quality. Caveat Emptor indeed.

    1. You bring up such a great point. Unfortunately, I’m reading more and more about brand new SFH that are also requiring upgrades and repairs much sooner than expected. The quality and effort just aren’t there anymore, which is incredibly frustrating for those looking to get into the market.

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